What is Bank Owned Life Insurance?

Bank Owned Life Insurance (BOLI) is a life insurance policy that a bank purchases on the lives of certain employees, usually executives or highly compensated employees. The bank owns the policy, pays the premiums, and is typically the beneficiary.

How Does BOLI Work?

The bank purchases a permanent life insurance policy and pays either a single premium or premiums over time. The policy can build cash value, and if the insured employee dies while the policy is active, the bank generally receives the death benefit.

Banks may use BOLI as part of their financial strategy to help offset employee compensation and benefit costs.

Why Do Banks Use BOLI?

BOLI can provide several potential benefits:

• Potential cash value growth over time

• A death benefit for the bank

• Income that may help offset employee benefit costs

• A long-term financial planning tool

However, BOLI also involves risks, including insurance company credit risk, investment risk, liquidity considerations, and regulatory requirements.

Is BOLI an Investment?

BOLI is primarily a life insurance product, but it can have investment and financial benefits for the bank. Before purchasing a policy, banks generally evaluate the insurer, policy costs, expected returns, risks, and regulatory requirements.

Bottom Line

Bank Owned Life Insurance is a specialized financial tool that allows banks to provide life insurance coverage on certain employees while potentially generating value that can help offset employee-related costs. Because BOLI involves complex financial, tax, accounting, and regulatory considerations, banks should carefully evaluate whether it fits their overall strategy.

With over 100 years combined experience in the industry and relationships with all the marketplace BOLI carriers, BCC can assist your bank in not only selecting the BOLI product that best suits your needs, but can also offer a complete in-house, accessible, and committed service team to assist with implementation, compliance, and administration of your BOLI and benefit plans.